CALGARY – Onex Corp.’s $5-billion acquisition could reshape Canada’s airline industry and bring in Air Transat in its fold at a later date, according to analysts.

Toronto-based private equity giant and asset manager Onex is taking Calgary’s WestJet Airlines Ltd. private in a deal worth $31 per share or $5 billion, including debt, that represents a massive 63 per cent premium over WestJet’s share price over the last 20 days. WestJet’s stock shot up 60 per cent on the news to $29.66 on the Toronto Stock Exchange.

“We are delighted to continue the journey of building an airline based on a growing network, providing competitive airfares and more choice to, from and within Canada, for communities large and small,” WestJet president and CEO Ed Sims said in a release.

The huge premium is a signal, analysts say, that Canadian airlines have been persistently undervalued relative to firms in other countries and is a particularly positive sign for rival Air Transat, the Montreal-based airline which is currently in sale talks.

The Onex/WestJet deal is also the most high-profile example of a trend playing out in the sector — of private equity companies buying stakes in Canadian airlines.

“Relative to other industrials, the entire Canadian airline space in incredibly undervalued,” AltaCorp Capital analyst Chris Murray said, noting that WestJet had also been undervalued due to “issues of its own making.”

Onex approached WestJet with a proposal in March to buy the company through its private equity firm Onex Partners. The WestJet board, which includes founder and chair Clive Beddoe, voted unanimously in favour of the deal.

It’s possible but highly unlikely that another strategic buyer or private equity firm will emerge with a competing offer for WestJet, said analyst Scott Chan of Canaccord Genuity.

“The premium is really high and you’d have to look at the foreign competition rules in Canada,” Chan said, adding that only a few other firms could compete. “You’d have to look at Fairfax (Financial Holdings Ltd.) and Brookfield (Asset Management) as the only plausible ones and I don’t think that’s likely based on their mandates, which is more international than domestic,” Chan said.

Onex has the “opportunity to delever” WestJet over the medium-term and could make a tidy return on the company in the way they purchased Spirit AeroSystems from the Boeing Co. in 2005 and sold off the company in 2014, Chan said.

A significant number of steps are required between now and the close of any transaction, with a number of interested stakeholders expected to weigh in on the merits of the WestJet acquisition, said AltaCorp’s Murray. “With that in mind, we anticipate that it may take until 2020 to see a potential close to the transaction.”

Large investment managers are already heavily invested in the Canadian aviation sector. Montreal-based Letko Brosseau & Associates is the largest shareholder in both Air Canada and Transat AT, and the second largest in WestJet according to Bloomberg data, while Fairfax is the largest shareholder in Chorus Aviation. Silchester International Investors LLP is the WestJet’s biggest investor with a 16.7 per cent stake.

The entire aviation sector got a lift from Monday’s deal.

Air Canada shares rose 5 per cent to $37.99 each in mid-day trading, while Air Transat owner Transat AT Inc. shares rose 4 per cent to $10.27 each. Even the smaller Chorus Aviation Inc., an aircraft leasing firm based out of Dartmouth, N.S. that operates Jazz Airlines, rose two per cent per share to $7.29 per share, defying a broader decline in global markets.

The Onex deal for WestJet is particularly positive for Air Transat as it increases the likelihood the Montreal-based company will be acquired — by WestJet, Desjardins Securities analyst Benoit Poirier said in a research note.

Onex might look to acquire Transat A.T. The tour operator, which owns Air Transat, competes with WestJet for sun destinations and launched in 2017 a $750-million plan to develop a hotel chain in Mexico and the Caribbean.

“We believe it would be easier for WestJet to acquire Transat once the company is integrated within Onex, as unlocking Transat’s full potential could take a few years (3-5 years) — which might be less suited for a public entity,” Poirier said in an investor note.

Transat AT announced April 30 that the company was in preliminary talks to sell the airline and travel company, which sent its shares soaring, and has since drawn interest from a range of private equity buyers, other airlines and well-known Quebec business people.

“Overall, we believe this transaction has positive implications for (Air Transat) as ONEX could ultimately look to acquire (the company) to complement WestJet’s offering, in our view,” Poirier said.

He also listed Air Canada and Hanover, Germany-based tourism operator TUI Group as potential acquirers.

Dominik Pigeon of financial services and private equity firm FNC Capital confirmed last week his interest in Air Transat. “Our goal is not just to buy it, but to grow it, and to support the management team in place,” he said.

In addition to Pigeon, Vincent Chiara, president of real estate developer Groupe Mach, confirmed last week he has submitted an offer for the parent company of Air Transat, while Pierre Karl Peladeau, the president and CEO of Quebecor Inc., also confirmed last week he’s requested a financial analysis of the company for a personal investment.

If a private equity firm takes out Air Transat, it would continue a trend that has been playing out among the smaller operators in the sector in recent months.

“We have been seeing some private activity. In terms of the larger public market M&A, it’s not like there’s a lot left to play with,” AltaCorp’ Murray said adding that he didn’t expect a private equity giant would take a run at Air Canada.

“But if you had asked me on Friday do I think anybody would come and buy WestJet outright I would have said, ‘no,’” Murray said.

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